Jumping in and purchasing your first home can be overwhelming and running into financial traps is possible. However, it's easy to avoid these mistakes by taking a few pre-emptive steps.
Jumping in and purchasing your first home can be overwhelming and running into financial traps is very possible.
However, it is easy to avoid these mistakes by taking a few pre-emptive steps. See what financial traps to avoid when buying your first property.
Borrowing more than you need
When applying for a home loan, your lender will assess your income, assets and liabilities and from this will give you your maximum loan amount that you can borrow.
">This can become a dangerous trap for first home buyers if you borrow over your budget. Before applying for a home loan, research the type of properties you are interested in and what price range would suit your budget. Then, when it comes time to applying for a home loan, you will know what amount you can handle. Borrowing the maximum amount the lender is offering you, even when you don’t need it, may mean you will end up paying a large amount extra in interest and it could place significant strain on your budget down the track.
Calculating how much you can afford is quick and easy to do online. Take a look at our range of home loan and finance calculators to help you.
Not saving a sufficient deposit
Having little to no money saved for a deposit could classify you as a high-risk borrower and therefore lenders may implement certain provisions in order to protect themselves in case you default. Some examples include paying a higher interest rate, additional fees and charges and Lenders Mortgage Insurance, which is a one-off fee that could equate to thousands of dollars.
Saving as much as you can before buying will not only either lower the amount of mortgage insurance you need to pay or remove it all together, it will also give you a wider variety of lenders and loans to choose from. Having a large deposit could mean you can actually choose which lender you want rather than be stuck with a lender that will take you. Saving for a deposit will also give you discipline required for making mortgage repayments in the future.
Overspending on a renovators delight
Buying a renovators delight always has its risks for buyers, however these risks are heightened for those who are inexperienced with renovating. Many make the mistake of not thoroughly researching the property market and the costs involved in renovating the property and as a result, overspend and end up selling the property for less than what they originally purchased it for.
Not organising a pest/building inspection
It is recommended for buyers to have a building and pest inspection done on a property to ensure you are buying a quality house and you will not fall victim to any nasty surprises in the future. But did you know these inspections could save you money in the short term?
Buyers are always looking for ways to negotiate the purchase price down and it is possible to increase your negotiating power just by getting a building and pest inspection done. If you find problems with the property such as mould or termites, you can use this to show the property isn’t worth the purchase price and ask for a discount.
After purchasing a property, buyers do not have any legal protection, so if you find termites a few weeks after moving in, the previous owner does not have any legal obligation to fix it. Although there is an upfront cost, it will be well worth it down the track.